Monday, October 10, 2016

The
U.S. unemployment rate ticked higher last week. The September jobs report
showed the United States added 156,000 new jobs in September. That was 16,000
fewer than economists were expecting and 11,000 fewer than were added in
August, according to Barron’s.

That doesn’t sound like good news,
does it?

On
the other hand, the report showed more people are working and looking for jobs.
Also, wages increased so people are earning more. The Wall Street Journal wrote:

“The
report – marked by a slight uptick in the unemployment rate to 5 percent –
largely fit the narrative Fed Chairwoman Janet Yellen laid out for the labor
market after the central bank’s September policy meeting. People are rejoining
the labor force in search of work. Many of them are finding jobs, but not
all…Ms. Yellen sees the return of workers to the job search process as a
healthy sign.”

That sounds like good news, right?

The
jobs report seemed to support the conclusion of The New York Times that there are two economic realities in the
United States, “…healthy hiring and falling unemployment on the one hand,
millions of economically sidelined Americans on the other…”

Uncertainty surrounding the jobs
report caused U.S. stock markets to fall last week.

Data as of 10/7/16

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard &
Poor's 500 (Domestic Stocks)

-0.7%

5.4%

7.9%

8.7%

13.3%

4.8%

Dow Jones
Global ex-U.S.

-0.4

3.3

1.4

-1.6

3.5

-0.2

10-year
Treasury Note (Yield Only)

1.7

NA

2.1

2.6

2.1

4.7

Gold (per
ounce)

-4.7

18.6

10.1

-1.6

-5.3

8.2

Bloomberg Commodity Index

0.4

9.0

-5.0

-12.6

-9.6

-6.2

DJ Equity All REIT Total Return Index

-5.2

6.7

10.4

11.9

15.1

5.5

S&P 500, Dow
Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested
dividends (gold does not pay a dividend) and the three-, five-, and 10-year
returns are annualized; the DJ Equity All REIT Total Return Index does include
reinvested dividends and the three-, five-, and 10-year returns are annualized;
and the 10-year Treasury Note is simply the yield at the close of the day on
each of the historical time periods.

Past performance
is no guarantee of future results. Indices are unmanaged and cannot be invested
into directly. N/A means not applicable.

is
IT a cyclical rotation? Economic
growth may not be predictable, but it tends to follow a pattern that is known
as a business or economic cycle. Periods of recession (when the economy
contracts) are followed by periods of growth (when the economy expands).

Some companies and market sectors
tend to perform better during economic expansions. They’re known as cyclical
companies, and they make goods or deliver services – entertainment,
automobiles, vacations, and so on – that people want to buy when they’re
feeling prosperous. Generally, people feel prosperous during periods of
economic expansion. Other companies are called ‘defensive.’ They offer goods or
services – food, beverages, personal products, and so on – that people need
regardless of their wealth or economic conditions.

In recent months, we’ve seen what
may be a rotation from defensive market sectors into cyclical ones. Financial Times explained the shift in
U.S. markets:

“The shift signals investors are
worrying about high prices for the defensive, dividend-paying stocks that were
in heavy demand in the first half as worries over the outlook for the global
economy dominated…Indications of a potential rate increase this year and hopes
that economic growth was improving were making unloved, cyclical parts of the
market look more attractive.”

If you look at returns for the
first three quarters of the year, cyclical stocks and defensive stocks
delivered almost the same performance. Through September 30, 2016, the MSCI
ACWI Cyclical Sectors Index was up 4.8 percent and the MSCI ACWI Defensive
Sectors Index was up 4.7 percent. The trend appears when you look at the
numbers during the third quarter. During July, August, and September, cyclical
sectors were up 8.2 percent and defensive sectors were down 0.7 percent!

expenses, or sales charges.
Index performance is not indicative of the performance of any investment.

* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.

Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.

* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.

The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.

* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.

* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.

* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.

* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.

* Consult your financial
professional before making any investment decision.

* Stock investing involves
risk including loss of principal.

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